How to Use The Bill Williams Indicator

Bill Williams Indicator is helpful in analysing trending markets, reversals and momentum. It is also known as the Alligator Indicator as the pattern it forms resembles an alligator's jaws, teeth and lips. In our article, we will provide you with an in-depth guide on the Bill Williams Indicator.

 

What is the Bill Williams Indicator?

The Bill Williams Indicator is a technical analysis tool that helps in identifying the formation of a forex trend. It also determines potential entry and exit points during trend reversals by analysing the strength of the ongoing trend. The pattern consists of three lines –

• The green line represents the alligator's lips which defaults to a 5-period simple moving average (SMA) and is smoothed by shifting 3 bars into the future.
• The blue line represents the alligator's jaws which defaults to a 13-period SMA and is smoothed by shifting 8 bars into the future.
• The red line represents the alligator's teeth which defaults to an 8-period SMA and are smoothed by shifting 5 bars into the future.

Note that the moving averages are calculated by the median price ((high+low)/2). The indicator analyses the relationship between these three lines. Where the lines move closer, the concept is that this indicates the alligator is sleeping and the market is consolidating. At this point, the trader would either hold onto the trades and wait for the market trend to become stronger or trade against the current trend with an expectation of trade reversal. When the lines start to diverge, the concept is that the alligator wakes up, indicating that the market has started strongly trending toward the mouth opening. At this point, the trader could trade the market in the trend's direction to amplify trade success opportunities.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

List of Bill Williams Indicators

 

Awesome Oscillator

The Awesome Oscillator (AO) is a technical analysis indicator that is used to measure market momentum. It is based on the difference between a 34-period and a 5-period simple moving average. The Awesome Oscillator is calculated by subtracting the 34-period simple moving average (SMA) from the 5-period SMA. The result is then plotted as a histogram that fluctuates above and below a zero line. When the histogram bars are above the zero line, it indicates that the short-term momentum is greater than the long-term momentum, indicating a bullish trend and signalling traders to enter long orders. The opposite is indicated when the bars are below the zero line, representing a bearish trend and signalling traders to short the trend. The AO indicator is used with other technical analysis indicators like trend lines, support and resistance levels to confirm market signals and increase trading success potential.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

Acceleration/Deceleration (A/C) Oscillator

The Acceleration/Deceleration (AC) Oscillator is another technical analysis tool developed by Bill Williams, and it is often used in conjunction with the Awesome Oscillator (AO). It is used to identify the strength of the existing market trend. The AC Oscillator is calculated by taking the difference between the 5-period simple moving average of the median price (the average of the high and low prices) and the 34-period simple moving average of the median price. This difference is then plotted as a histogram oscillating around a zero line. When the histogram bars are above the zero line, it indicates that the momentum of the market is accelerating (bullish), and traders would take long positions. On the other hand, when the histogram bars are below the zero line, it indicates that the momentum of the market is decelerating (bearish), and traders would take short positions.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

Gator Oscillator (GO)

The Gator Oscillator is a technical analysis tool developed by Bill Williams, and it is designed to help traders identify changes in the trend and the strength of market momentum. The Gator Oscillator consists of two histograms, which are displayed in the same window as the price chart. When both histograms are positive, it indicates that the market is in a strong uptrend, and traders can open long positions. When both histograms are negative, it indicates that the market is in a strong downtrend, and traders can open short positions. However, when one histogram is positive, and the other is negative, it indicates that the market is in a phase of indecision or consolidation, and traders should hold onto the existing positions for a while and not enter into new trades.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

Fractals Indicator

The fractals indicator is widely used to identify potential reversals in forex price trends. It helps traders identify exit or entry price levels opposite to the ongoing market trend to place successful trade orders. The pattern is made of five consecutive bars in which the middle bar has the highest high or lowest low. The first two bars in this pattern reach a higher high (or lower low), whereas the last two descend to a lower low (or higher high). The pattern also has green and red arrows, whereas the former indicates potential buying points and the latter indicates potential selling points. Since a fractal pattern indicates that the current trend may be reversing, it means that if a bullish trend is in place, and a bearish fractal appears, it indicates the trend may be ending, and a bearish reversal is about to occur.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

Market Facilitation Index (MFI) Indicator

The MFI measures market activity and helps traders identify changes in market direction. It indicates that when trading activity is low, it becomes more difficult for prices to move in a particular direction, and therefore the market is said to be in a sleep phase. During this time, traders would hold onto their existing trades and not enter new ones. On the other hand, when trading activity is high, prices can move more easily, and the market is said to be in an awake phase, and traders would place orders in the existing trade's direction. The MFI is calculated by multiplying the volume of trades by the difference between the current and previous price and then dividing that number by the total volume of trades. This value is then plotted as a histogram, with positive values indicating an awake phase and negative values indicating a sleep phase.

This graph has been recreated from the original source. Please note this image is a representation only and is not provided as general or personal advice.

 

Top Bill Williams Indicator strategies

 

Bullish and bearish line crossover strategy

The bullish and bearish line crossover strategy in the Bill Williams indicator includes looking for crossovers between the different lines to signal a change in market direction. This helps a trader trade market reversals and benefit from both falling and rising markets.

• A bullish crossover occurs when the blue line crosses above the red and green line, indicating the market entering into a new uptrend and signaling traders to buy or long the trade.
• A bearish crossover occurs when the blue line crosses the red and green line from below, indicating the market entering into a new downtrend and signaling traders to sell or enter a short trade.

 

Twin peaks

The twin peaks strategy is used to confirm market trends and helps traders place trading orders in the direction of the ongoing trend. It also helps in measuring the strength of the existing trends and identifying if the market will continue in the same direction or reverse. In this strategy, when the first peak is formed, traders should wait for the second peak to form, which should be a little smaller than the first peak. Once the second peak is formed, traders should look for the histogram to move below the zero line to confirm a bearish trend reversal. This is called a bullish twin peak which signals traders to enter into short trades. A bearish twin peak is formed when two consecutive peaks form, but the second peak is smaller than the first, and the red line is closer to the zero line. This confirms a bullish trend reversal and signals traders to enter buy orders or long trades.

 

Saucer strategy

The saucer strategy is also used to identify potential trend reversal in the forex market. It is based on the Awesome Oscillator, a momentum indicator measuring the difference between two simple moving averages. The saucer strategy involves looking for three consecutive bars in the Awesome Oscillator histogram that are positioned in a saucer-like formation, where the first bar is below the zero line, the second bar is slightly higher and crosses above the zero line, and the third bar is higher than the second bar. You receive a bullish signal when the saucer formation is found below the zero line, indicating a potential trend reversal from bearish to bullish. This signals traders to place long orders in the market. The first bar of the saucer formation represents the end of a bearish trend, where the selling pressure has exhausted itself. The second bar represents the start of the bullish trend, where buying pressure is building up, and the third bar represents a continuation of the bullish trend. On the other hand, a bearish signal is generated when the saucer formation is found above the zero line, indicating a potential trend reversal from bullish to bearish. This signals traders to place short orders. In this formation, the first bar represents the end of a bullish trend, where the buying pressure has exhausted itself. The second bar represents the start of the bearish trend, where selling pressure is building up, and the third bar represents a continuation of the bearish trend.

 

Williams %R and moving average divergence strategy

In this strategy, traders use the divergence between the price and the Williams %R to identify potential trend reversals. The Williams %R is a momentum indicator measuring overbought and oversold market conditions. It measures the current closing price relative to the high-low range over a specific period, typically 14 periods. It ranges from 0 to -100, with -20 and -80 being the most overbought and oversold levels, respectively. When used with the moving averages, you can look for divergence between the forex prices and William's %R. When the price is making higher highs, but the Williams %R is making lower highs, it is a sign of a bearish reversal. This signals traders to place short orders in the market. On the other hand, when the price is making lower lows, but the Williams %R is making higher lows, it is a sign of a bullish reversal. This signals traders to place long orders. Moving averages confirm the trend direction and help traders trade the reversals. When the Moving Average is sloping upward, it confirms a bullish divergence, and when it is sloping downward, it confirms a bearish divergence.

 

Moving Average Ribbon

The Moving Average Ribbon strategy is also used with the %R. In this strategy, traders use multiple Moving Averages of different periods to create a ribbon-like indicator that shows the trend direction. Typically, traders can use three or more exponential moving averages (EMAs) with different periods, such as 10, 20, and 50. The EMAs are plotted on the price chart, and when they are sloping upwards, it indicates a bullish trend, signalling traders to place long orders. When they are sloping downwards, it indicates a bearish trend and signals traders to place short orders. Traders can generate buy signals when the price crosses above the moving averages and the Williams %R crosses above the oversold levels during a bullish trend. Similarly, traders can generate sell signals when the price crosses below the moving averages and the Williams %R reaches overbought levels during a bearish trend.

 

Make the most of Bill Williams indicators

Bill Williams indicators help in a comprehensive analysis of the forex market by combining two or more technical indicators together. It provides early warning signals, identifies market reversals and confirms market continuation trends. Sign up with our forex trading platform. Sign up for a live trading account or try a demo account.